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Mail Money: They're taking a loan of you.

MORTGAGE lenders are ripping off customers with a raft of extra charges.

If you're moving or remortgaging, you might think the only things you need to check are the monthly payments and whether there's an arrangement fee.

But Rebecca Fearnley, of the Consumers' Association, points out: 'Things like mortgage indemnity guarantees can cost hundreds.

'Other things include annual interest calculation and lenders charging interest to the end of the month, so if you change mortgages you end up paying for the same month twice.'

Here are some of the main traps and how to avoid them.

INDEMNITY GUARANTEES If you borrow more than 90 per cent of your property's value, you will probably be charged a mortgage indemnity guarantee (Mig), also called a high lending fee or maximum advance premium.

Banks and building societies use the cash to buy an insurance policy that protects them if you can't pay.

If they repossess your property and sell it for less than you owe, it makes up the difference. However, you will remain liable for the whole debt.

Although Mig is generally charged only if you borrow over 90 per cent, lenders usually base it on how much you're borrowing above 75 per cent.

This means if you wanted a 91 per cent loan on a house worth pounds 100,000, your Mig fee would be a percentage of pounds 16,000 i.e. the difference between pounds 75,000 and pounds 91,000.

At Bank of Scotland the rate is 7.5 per cent, making a fee of pounds 1200 for borrowing pounds 1000 extra. The Royal Bank, charges 8.95 per cent an extra cost of pounds 1432 on the same sum.

Instead of paying up front, Mig is usually added to the loan, so you also pay interest on it for years.

Avoidance tactic: Consider a personal loan to make up the difference if you need more than 90 per cent. CONDITIONAL INSURANCE Rebecca says: 'Some smaller lenders insist you take out their buildings and contents cover to get their best rate.'

But if these policies aren't good value, you could end up paying more than if you borrowed elsewhere and went to a broker for insurance.

Avoidance tactic: Do not consider this kind of deal without checking if you can do better for insurance.

ANNUAL INTEREST Several lenders, including Bradford & Bingley, recalculate interest on mortgage debts annually rather than daily or monthly.

This means your monthly payment is based on the debt at the start of the year, not the amount outstanding, so you pay interest on money you no longer owe. Lenders make even more if you make a lump sum repayment.

Avoidance tactic: Choose a deal with daily or monthly calculation. If you're stuck with it, make lump sum repayments just before calculation date. CHANGES IN THE BASE RATE When the Bank of England raises its base interest rate, lenders follow suit immediately. But when it falls many are slower to pass on the benefit.

Avoidance tactic: Choose a fixed-rate loan or a discounted tracker deal that shadows the base rate.

EARLY REPAYMENT FEES These are not so common these days but can run to thousands of pounds.

Avoidance tactic: Most cheap deals charge early repayment fees but avoid ones that extend beyond discount periods so you can remortgage. DEEDS AND OTHER ADMIN FEES Many lenders levy an admin charge, often called a deeds, discharge or sealing fee, of up to pounds 195 when you pay off your loan. And many charge interest right to the end of the month in which you close your loan.

Avoidance tactic: Check small print.
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Title Annotation:Features
Publication:Sunday Mail (Glasgow, Scotland)
Date:May 23, 2004
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